The Good, the Bad, and the Ugly

This monthly series of articles describes the many steps and occasional missteps we have taken in building our financial advisory business, Garnet Group LLC. Currently, Garnet has eight staff members, more than 90 clients, more than $300 million in client net worth under advisement, and offices in Bethesda, Md., and Boston. Veena Kutler, CFA, and Annette Simon, CFP, are the managing principals in the Garnet office in Bethesda.

It's not that long ago--maybe four or five years--that a national survey of job satisfaction found that "financial advisor" was the best job in America. How things have changed! At a recent conference an advisor/presenter told of a client who came in for his annual review and commented that there were two jobs he was very happy not to have--his advisor's and Barack Obama's. Between the bloodbath in the market starting last fall and the likelihood that independent advisors may soon be lumped together with large brokers and regulated by FINRA, tough times seems to understate the current environment in our industry. Many small practices are merging hoping to achieve economies of scale that enable them to survive. Other longtime practitioners have had it and are moving on to new careers. As one fed-up advisor said to us, "There must be a better way to make $90,000 a year!"

Surely every member of our profession has had a moment of doubt, hesitation, perhaps even of utter despair sometime over the past several months. At that point each of us has asked, "Why am I doing this?"

Thinking about the terrible storm we have endured so far and may continue to face, we thought this is a good time to step back and look at our profession--the good, the bad, and the ugly, presented in reverse order.

The UglyIf we didn't know before 2008 (for those of you who entered the business after the painful 2000-2003 bear market) it's pretty clear now that the very worst thing about being a financial advisor is that the most obvious measure of our success lies entirely outside our control. Of course we're talking about portfolio performance. Yes, we can diversify risk, hedge our bets, and, some believe, make timing decisions that mitigate some of our clients suffering. But, as we have learned again recently, there are times when every asset class loses value, when the lessons of history go right out the window, and what should have been wise, measured counsel appears to be bad advice that we wish we had kept to ourselves or thrown out with those history lessons.

Our own portfolios have shrunk right along with our clients', because we are believers in investing in the same way our clients do, but it's their losses that cause us the most grief and frustration. Many advisors have told us of sleepless nights and medical issues as a result of the crash. Jokes about bankers and brokers jumping out their office windows in 1929 don't seem as far removed anymore from the perspective of our colleagues who are suffering so much pain.

Clients, who we have worked so hard to serve and educate over the years, range from stoic and accepting to angry and unable to understand how this could have happened to them. Why, they ask, didn't they get out of the market before the big drop, or back in November or December before the even-worse declines in January and February? Even after years of explaining in every meeting that we add value by advising them in all areas of their financial lives, not just their investment portfolio, in the short term some clients only see the losses they have incurred. We can point to our long-term and oft-expressed belief in asset allocation and sticking to long-term allocations. Most clients acknowledge that we never claimed to be market-timers and agree that they received the service they expected to get. But a few clients tend to forget the multiple conversations we've had over the years about sticking to an allocation and even the benefits of choosing a less-risky allocation if appropriate. Pointing out that returns are better than the broad equity market is also not reassuring when the client is faced with negative numbers. And who can blame them? Losing money just plain hurts.

We feel lucky that our client base is essentially intact and that we have not lost clients because of performance. During these difficult times we can at least pat ourselves on the back for having successfully and rigorously explained our process both on the investment front and in the entire financial planning arena.

The BadEven in a normal market environment, there are busy periods of our work. We were reminded of one of these stressful aspects of the business last week--in the final days leading up to April 15. We began talking about tax planning in mid-2008 (as we do every year), and made sure that our clients had received all of their tax documents weeks ago (as we always have in the past). Still, last week we were flooded with calls and e-mails from clients and their accountants--just like clockwork. The same thing happens each year in the last week of December: clients call to make last-minute charitable donations, gifts to their family members, or retirement-plan contributions. We do our best to cajole and nag about these items early in the year, but although we have reminded them, some clients just don't focus on planning issues until the deadline is looming. PAGEBREAK

We're just relieved that we don't prepare tax returns. Those of you who provide that service must be ready for a week in an isolation tank at this point!

Setting aside deadlines and difficult markets, the final negative aspect of a financial planning career is the disappointment we feel when our clients ignore good advice and continue inappropriate financial behavior. Change is hard for everyone, and we know that. Nonetheless, it's disappointing and sometimes heartbreaking to work so hard to develop a practical, reasonable plan that could lead a client to eventual prosperity only to watch them ignore that sound advice month after month, year after year. We chose this career because of a genuine desire to share our analytical skills and to help others. It's disappointing when our best efforts aren't enough. However, being a planner means functioning as a therapist to our clients at times. So we understand that while our clients recognize the advice we give them from a logical perspective, it's not always easy for them to make the immediate sacrifices necessary to reach their longer-term goals.

The GoodFortunately, the market is not always volatile, April 15 and year-end each only come once a year, and some of our clients really do take our advice to heart and progress each year toward their goals. It feels great when a client tells us he sleeps soundly at night knowing that we are taking care of his financial life. We tell our clients we are here to help with anything that touches their financial lives. Our best, most rewarding relationships are with clients who get that, and give us the opportunity to truly act as their trusted financial advisor.

In addition to some very warm client relationships, we have formed friendships with many colleagues within the financial planning community. It sounds cliché, but our staff and Garnet partners are almost like family. Attending conferences allows us to fulfill our continuing education requirements, and to pick up new ideas for our business. But more than that it's how we stay in touch with friends from around the country. There is an undeniable social element to our association memberships and it's a part of the profession we enjoy tremendously.

Beyond our relationships with clients and colleagues, we both value the personal freedom and flexibility our positions as owners of Garnet Group afford us. Our Bethesda staff is small, but thanks to them and a very disciplined use of our CRM system (Redtail) we are both able to work from home some days and even to take real vacations. Neither of us can think of another job that would allow us the independence we now have while still providing a reasonable income.

ConclusionAll in all, for us, the financial advisory business is still a great fit and we're still happy to be a part of the industry. Here's to better days for all of us, sooner rather than later!

Veena A. Kutler, MBA, CFA, and Annette F. Simon, MBA, CFP, are founders and principals of Garnet Group, LLC -- www.garnetgroup.com, a fee-only wealth management firm with offices in Bethesda, MD and Boston MA. Both are NAPFA Registered Financial Advisors with more than 30 years of financial planning and portfolio management experience between them. Garnet serves the needs of high net worth individuals and families in the Boston and Washington, D.C. areas